Sam Ballas has a lot of epiphanies.
The CEO of East Coast Wings & Grill, a North Carolina-based chain in the high-flying wings segment, attributes his success with unit-level economics to strategic brainstorms about how to translate his background in family restaurant management into a franchise system.
The result: East Coast slows down growth to speed up sales. Last year, Ballas’ efforts at the brand yielded an average unit volume of $1.5 million for East Coast—not too shabby for a 28-unit chain.
Ballas is religious about key performance indicators (KPIS) and benchmarks that drive the bottom line with unit-level economics. He insists that studious understanding of KPIs is the magic formula to fruitful growth—not chasing a high store count. Unit-level economics drill down into the profits of each location based on thorough market research, demographics, real estate, and other factors. The end result ensures each store opens at the best site, but the stretch required to unveil a new site means only a handful of East Coast units open annually. Ironically, the slow growth is surpassing the competition.
Through unit-level economics, “each restaurant individually becomes extremely profitable very quickly,” says Jason Moser, senior analyst at financial services firm Motley Fool One. “It allows the business to essentially self-fund its own growth, so it’s the slower method of growing, maybe, but it can certainly be more financially rewarding.”
“You can Google brands in the last 10 years, emerging brands, that have said, ‘we’re going to open 30 or 40 units this year,’ and they’ll open three,” Ballas says. “We’ll say 10–12 in a year and we’ll open six or seven. The reason we don’t hit those unit opens is because in the course of that year, we’ve had to slow down to restructure or iron out any wrinkles of KPIs that we feel help us drive unit-level economics.”
The franchising model usually lends itself to lower profitability than a company-owned format, because the company isn’t making money on each store. “They’re just collecting a royalty,” Moser explains, “whereas focusing on stronger unit economics can result in a much more profitable entity for the company itself, as opposed to looking toward external forces like franchisees to do the growing for them.”